Ascertaining the legal authority of non-state rules

Introduction

The introductory chapter asked the key question of how the legal authority of non-state rules can be measured. To answer this question Chapters 2, 3 and 4 examined the nature of non-state rules through defining non-state rules, examining how their legal authority can be ascertained, how they contribute to the harmonisation of international commercial law, and analysing their status as a source of law. This first part of the book concluded that the legal authority of non-state rules could especially be understood through their usage in practice i.e. through their application. Thus, two other prominent questions that arc key to understanding the legal authority of non-state rules arose. When are non-state rules applied? And how are they applied? These questions were answered in chapters 5, 6, 7, 8, 9, and 10. Chapters 5, 6, and 7 concentrated on when non-state rules can be applied and explored the agency of both the parties and the courts/tribunals to use non-state rules as the law governing the contract. Chapters 8,9, and 10 analysed how courts apply non-state rules to interpret the law and the contract.

This concluding chapter examines the conclusions from the analyses in the preceding chapters and comes to some final thoughts and an overall conclusion. The first section examines the criteria against which the legal authority of non-state rules can be measured, the second section examines the application of non-state rules as the most important of these criteria, and the third section analyses how the application of non-state rules contributes to understanding their legal authority. A section discussing the wider place of non-state rules in international commercial law follows this. This chapter concludes that non-state rules play a key role in international commerce. Whilst they are not as regularly applied as the law governing the contract, they are applied frequently as sources of domestic law, to interpret the contract, and to interpret the law. This demonstrates the support that they have in the business community and among legal professionals. Non-state rules gain in legal authority through a more frequent application by courts/tribunals as this contributes to their development from social norms or contractual rules to law or rules of law. As non-state rules become more authoritative, they also contribute further to the harmonisation of international commercial law.

Categorising legal authority

Non-state rules in international commercial law can be divided into six categories:

• • General principles of law. They exist in international commercial law, international public law, and domestic law. In international law general principles of law are defined as those principles, which are common to most legal systems as per Article 38 of the ICJ. These principles are intended for state relations, which is why they arc not necessarily a good fit for private commercial relations. Whilst they can provide some guidance in understanding the principles underlying international commerce (such as the importance of pacta sunt servanda), they provide limited practical help in interpreting the contract. Domestic laws tend to recognise general principles of law as a source of law. These are not necessarily the same as general principles of international law, but they rather serve as the underlying principles of the law that provide an understanding of the foundations of the law. General principles of transnational commercial law find their inspiration in both international and domestic legal principles. These principles are developed by merchants, international organisations, arbitral tribunals, and courts to fit the needs of international commerce. They arc uncodified, although can of course be written down or found in legal instruments (such as in the CISG.)
• • Custom, trade usages, and practices. Practices have the weakest legal authority of these. There are two different types of trade practices. The first are those practices between two or more parties that regularly do business together and can thus be equated with course of dealing. These would not have any value beyond the specific contractual relationship. The second are practices that exist within a trade or locality. They would occur with some regularity, but not so often as to be considered trade usages. They would thus not be binding unless the parties regularly adhere to these (in which case they become a course of dealing).

Trade usages have stronger legal authority. Usages change between trades, ports, and regions. They can be binding even when the parties are not aware of them. It is usually only necessary that the parties ought to have known they existed. Trade usages do not require a sense of obligation. Only the regular observation of the practice as noted by the court/tribunal determines whether it is a binding trade usage. Their legal authority thus comes from the court’s observations and the merchant’s practices.

Custom is more universal and has older roots than trade usages. It takes more time for a custom to emerge. For a usage to be considered custom a sense of obligation is necessary. Traders do not follow the usage because it is convenient but because they believe it is obligatory.

It should be noted that the three terms are often used interchangeably by courts, practitioners, and in scholarly writing. There arc many commonalities between the three and distinguishing trade usage from custom is difficult and it does not change how binding they are. Practices, trade usages, and custom are unwritten, flexible, and can change over time/sector/place. They can be a source of domestic and of conventional law.

• • International conventions arc elaborated by international organisations or delegates appointed by state governments. Once they are ratified by a state and enter into force, they become part of the domestic law of that specific state. If they arc not ratified or have not entered into force, they would be considered non-state rules and their legal authority would be similar to that of a restatement of law (see below).
• • Restatements of law in international contracts arc mainly initiated by a group of private individuals, which can be connected to an international organisation. The main ones are the UNIDROIT Principles of International Commercial Law, the Principles of European Contract Law, and the Principles of Latin American Contract Law. These instruments represent a codification of existing principles of commercial law. The drafters did not merely codify existing principles and trade usages, but also innovated on these to ensure that the result represents the most appropriate solution for international trade. This category has transnational legal authority through their application in arbitration/litigation and their incorporation in contracts (either as the governing law or by reference). They have no standing in domestic legislation, unless they are considered general principles of law or trade usages.
• • Model laws have limited authority on their own. They can be adopted by states and become part of domestic law. Differently from conventions, model laws can be adapted during adoption, and therefore the adopted law does not necessarily resemble the original model law. The newly adopted law becomes absorbed in the domestic law. The original model law remains as a non-state rule. The parties to the contract could use them in the same way as a restatement of law is used but as they are aimed at states rather than at the contracting parties, they are not used frequently in commercial law disputes.
• • Model contracts and standard contract terms. These arc developed by international organisations and by trade branch associations. The parties incorporate them in the contract. In some trades standard terms of contract are used habitually. In domestic law these are often considered contractual rules. Their legal authority mainly stems from their incorporation in the contract although they could develop into trade usages.
• • Guidelines, travaux préparatoires, scholarly reflections, arbitral case law digests, and other similar works can be considered as part of international commercial law scholarship and doctrine. These documents arc prepared by a myriad of stakeholders including international organisations, trade associations, domestic legislations, practitioners, scholars, and private working groups. Their legal authority is diffuse. Overall, it is considered weak, but if the organisation behind the work is a prominent one this can increase their influence. Guidelines can have legal authority if they are incorporated in the contract or, if they are used by courts as scholarly doctrine (which is a (secondary) source of law in some jurisdictions.)

The expression lex mercatoria can be used to denominate all six of these categories or several of these. Under the most common understanding of the lex mercatoria, which represents a direct continuation of the medieval lex mercatoria, this should be restricted to trade usages and general principles of law. If codified non-state rules are included the debate would centre on whether all should be included or whether this should exclude those instruments (conventions and model laws) that arc aimed at the legislator and only include those that are aimed at the parties (model contracts, standard terms, and restatements of law.)

Custom, usages, and principles can be recognised as sources of domestic law. Codified non-state rules usually have no direct standing in domestic law. They can have legal authority if they arc incorporated in the contract (restatements, guidelines, conventions, and standard contract terms), they are ratified by a state (conventions), adopted by a state (model laws), or used by courts/ tribunals to interpret or fill any gaps in the applicable law (all of these).

Non-state rules have authority in two spheres: national (domestic commercial law) and international (transnational commercial law). Non-state rules can have legal authority in domestic law when they are applied as contractual rules, sources of the applicable law, the applicable law itself, to interpret the applicable law, or as legal scholarship/doctrine. The specific authority depends on the legislation of a particular jurisdiction.

Non-state rules can have authority in the international community. This international community is a diffuse phenomenon. It consists of businesses, arbitrators, other legal professionals, and (international) organisations. The legal authority of non-state rules in that community differs from sector to sector and from region to region. It can be measured by looking at usage in contracts by businesses, the application by arbitrators, and the support from international organisations. The legal authority of non-state rules in the international community cannot be hierarchised easily. The above elements contribute to establishing the authority of non-state rules in the international community (and in transnational commercial law) and work together.

Non-state rules harmonise the law through a more bottom-up approach rather than a top down approach. They need to be contracted into (like a restatement of law) or can be contracted out off (like trade usages) and their usage is not mandatory. Therefore, when and how they are used is key to understanding their legal authority. This can be done by looking at the theory (what does the legislation say about when they can be used? ) and the practice (when are they actually used?) The first can be understood by studying legislation (when can they be applied?) and the second by looking at the actual application (when arc they applied? & how are they applied?) (Figure 11.1).

Figure 11.1 Measuring the Legal Authority of Non-State Rules

To determine the legal authority' of a specific non-state rule one can look at the promulgator of the rule (international organisation, business community', trade association), the support it has (incorporation in contracts, legalisation, scholarly writing, usage by legislators), the content (analysis by legal professionals and scholars), and the application of the rule (by courts and arbitrators).

Chapter 2 concluded that the most important factor to measure the legal authority of non-state rules is their application (when and how arc non-state rules applied?) and through this one can understand the support they have (how are they perceived and used by the international business community?) This is because of the inherent nature of non-state rules: they are not imposed but arc (at least initially) used without any coerciveness from the state. The origin and the content of the rule, whilst important, would thus take a back scat compared to their usage. This usage can be determined by studying the application of non-state rules in theory and in practice. This application measures both how courts apply non-state rules and how the parties to the contracts use them. By focusing on the application in state courts it is possible to analyse the legal authority of non-state rules in domestic law and through this understand their authority in the international community.